Underestimated B2C Dimension
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Underestimated B2C Dimension

For a number of companies, real-time enterprise is merely the unimportant side of the coin. Everyone is talking about digital transformation. And companies are primarily considering their own processes.

However, the “digital tsunami” is an external phenomenon – as a result of the digitalization of B2C end-customers’ lives and its impact on the core business.

Data-driven approaches are a central element of digital transformation, for which various courses of action are proposed. Typical questions are for example: „What data do we have?“, „What data could we have?“ and „What can we do with it?“ This is indeed sensitive and important for B2B businesses, as well as for processes within and between companies, such as logistics chains or predictive maintenance; yet there is a decisive element missing for B2C businesses, such as retailing, banks or insurance companies – namely the strategic focus on the end-customer.

This does not mean to say that the end-customer does not play a role in many analyses of digital transformation. Indeed in many practical approaches, for example apps and mobile payment at Edeka or Rewe, the main focus is placed on the customer. The problem is that the focus remains at an operative or tactical level.

Above these levels, progress is undermined by professionally-blinkered approaches. As honorable as the attempt may be, the usage figures, e.g. at Edeka and Rewe/Yapital (a mobile payment method), speak for themselves; this outcome was foreseeable beforehand – in this case, the failure of approaches of this kind is also not a big problem. 

If, however, your own company is not the starting-point of the analysis, but digitalization of end-customers‘ lives is, the result is a different perspective. Likewise, simplicity must not be primarily seen from a company viewpoint. The most important instrument of this digitalization and customer-related simplicity, the smartphone, collects user-data of hitherto unknown commonality and quantity: location data, contact data, communication data, Internet connections and usage data of every kind.

Two important areas will be added in future: health data and (mobile) payment data, for which the competition is already raging. Mobile business is changing from an operative to a strategic element.

By way of comparison, the most frequently-quoted example concerning the difference in quality between big data and the older type of data-mining in B2C, namely the forecast of divorce cases by MasterCard in the USA, is based on an almost ridiculous database: classic credit-card billing data, which does not even include the respective shopping basket.

However, if the above-mentioned comprehensive data from smartphone usage is used as a basis, the result of the innovative application of big-data technologies on end-customer data is a forecast-option and influence on customer behavior on a level of comprehensiveness that is hitherto unknown.

The result is a universal power of recommendation that shifts between the customer and retailer: this enables retailers to always make the initial offer to end-customers, an offer which is very accurate in the combination automatically selected for the individual customer (content – time – communication channel). This is how simplicity works for the end-customer.

From a microeconomic point of view, this means monopolization of the customer interface: thanks to auction-like mediation, this results in the complete skimming-off of the margin. This prospect  concerns not only retailers, banks and insurance companies, but also the hotel and restaurant industry, consumer-goods manufacturers and – to a different degree – ultimately every company that offers or manufactures products or services for end-customers.

The scientific analysis shows that there are four market participants with such a large quantity of cross-disciplinary customer data which enables them to achieve a market position of this nature. (Pousttchi/Hufenbach 2014). These are primarily the two owners of the leading smartphone operating systems (Apple and Google), and secondly the leading social-media provider (Facebook), followed – some distance behind – by the leading online retailer (Amazon). Before splitting up, the joint venture company eBay/PayPal also had to be borne in mind here; PayPal also remains a candidate, depending on how things continue to develop.

The acronym AGFEA, based upon the first letters of the names of each of the original group-of-five, was also coined for these disruptive market participants (Asian companies, such as Baidu or Alibaba, were not part of the analysis). Each of these players has a very specific strength/weakness profile. But they all have something in common, i.e. their stock market valuation is based on very bold expectations of growth that can only be achieved by expanding their market dominance from the virtual world into the real world. Contrary to many assumptions, they will only want to take over the business of existing real-world companies in individual cases.

The objective is much more to perform the function of intermediary between the customer and retailer (strategic customer ownership) and to skim off the margin.

The aforementioned disruptive market participants have currently only partially developed the capabilities required for real-time evaluation/forecasting of customer behavior, for automated configuration/implementation of one-to-one marketing measures and the commercial infrastructure for the intermediary marketing function. The required database is also not available in its entirety. Realistically, market effectiveness is not expected for another two to three years.

The aim of the companies that are active in B2C business, and are thus affected in their core business, must therefore be to include this side of the digital transformation in their analyses and activities over the next few years. Only then will they be able to adapt in good time to the expected strategic changes in the value networks and take measures to arm themselves against the „digital tsunami“ (Gartner). Appropriate counter-strategies are part of our research at the University of Potsdam.

Fujitsu and E-3 Special (German) November 2015 / Q1 2016 (English)

About the author

Key Pousttchi, University of Potsdam

Prof. Dr. Key Pousttchi, University of Potsdam, SAP Foundation Professor for Business Informatics and Digitalization, in particular lT Strategy and lT Viability.

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